By Edward Zelinsky
The American Taxpayer Relief Act of 2012 is widely understood as a victory for President Obama. However, the long-term story is more complicated than this. The Act in large measure confirms in bi-partisan fashion the tax-cutting priorities of George W. Bush.
In the Act, President Obama achieved his proclaimed goal of increasing income taxes on the country’s most affluent taxpayers through higher income tax rates and reduced deductions. The Act creates a new 39.5% income tax bracket for individuals with taxable incomes above $400,000 and for married couples filing jointly with taxable incomes above $450,000. It phases out personal exemptions for individuals with adjusted gross incomes over $250,000 and for married couples with adjusted gross incomes over $300,000. It also reduces itemized deductions for these affluent taxpayers.
For high income taxpayers, the Act increases the maximum capital gains tax rate from 15% to 20%. When combined with the new Medicare tax on investment income, this results in a combined tax of 23.8 % on capital gains for the highest income taxpayers.
It is thus unsurprising that the Act has been heralded as a triumph for Mr. Obama and his vision of a more progressive income tax law.
However, the reality is more complex than this. For the long run, the winner under the Act was Mr. Obama’s predecessor, George W. Bush. The Act, as it gave Mr. Obama some of what he wanted, also made permanent much of what Mr. Bush desired as a matter of tax policy. Indeed, as a result of the Act, federal taxes are in important measure now permanently at the lower levels where President Bush wanted them.
The vast majority of Americans are not affected by the Act’s changes for the highest income taxpayers. For most taxpayers, the Act thus permanently ratifies the lower federal income tax rates championed by Mr. Bush in 2001. Moreover, the Act confirms that corporate dividends will be taxed at lower capital gains rates rather than as ordinary income. True: capital gains rates are now higher for the most affluent of taxpayers as a result of the Act. However, even at these higher rates, taxing dividends as capital gains, rather than as regular income, significantly reduces the tax burden on such dividends.
Consider, moreover, the federal estate tax. When President Bush took office in 2001, the federal estate tax applied to estates over $675,000. That floor was scheduled to increase in stages to $1,000,000. The maximum federal estate tax rate was then 55%.
While President Bush did not succeed in abolishing the federal estate tax, the Act provides that federal estate taxation will only apply to estates over $5,000,000 adjusted for increases in the cost of living. For 2013, an estate must be over $5,250,000 to trigger federal estate taxation. When it applies, the estate tax will be levied at a flat rate of 40%.
In the area of tax policy, President Bush did not achieve all he sought. No president does. If we define success more realistically, the 2012 Act confirms President Bush’s triumph in permanently lowering federal income tax rates for most Americans, reducing the effective tax burden on corporate dividends, and significantly reducing the reach of the federal estate tax.
To some, these tax reductions are welcome restraints on the federal leviathan. To others, the Bush tax reductions, now permanent, regrettably hamper the federal fisc. What cannot be doubted is that the Internal Revenue Code we have today in large measure reflects the tax-cutting priorities of George W. Bush. In adopting the Act, a Democratic President and Senate, along with a Republican House, permanently confirmed much of these tax-reducing priorities.
Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America. His monthly column appears on the OUPblog.
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This short clip from Studio 360 talks about an ongoing series by Scott Timberg at Salon.com called No Sympathy For The Creative Class which explores how artists are making 20–45% less income than before the recession. (my bold). This echoes what I’ve been seeing and hearing from hundreds of other illustrators since 2008/2009.
As the country has battled the Great Recession, we’ve been inundated with reports of corporate layoffs and manufacturing jobs vanishing. But there’s another group of American workers that has been particularly hard hit — the creative class.
In an ongoing series for Salon, reporter Scott Timberg writes that the last few years have seen a huge drop-off in jobs in the creative industries. He cites figures from the Bureau of Labor Statistics that show declines from 20 to 30 percent in photography, architecture, and graphic design since the recession began. In other fields, Timberg found, the downturn simply aggravated existing trends. “‘Theater, dance and other performing arts companies’ [are] down 21.9 percent over five years,” he writes. “Musical groups and artists plummeted by 45.3 percent between August 2002 and August of 2011.”
But the public — including the media and politicians — doesn’t have much sympathy, Timberg tells Kurt Andersen. Partly, it’s a problem of perception. Celebrity artists seem to be “doing fine … the Frank Gehrys, the Nicole Kidmans, the Drakes and so on.” Kurt suggests that since creative workplaces tend to be small, layoffs don’t generate the publicity of a large factory relocating to China. (via Recession Wanes, But Artists Still Starving - Studio 360)
Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America. In the article below he looks at the Clinton’s federal tax returns.
President and Senator Clinton’s federal tax returns provide much fodder for commentators who are debating a diverse set of questions in light of those returns: Has Mr. Clinton understandably maximized his post-presidential income in our celebrity-crazed culture – or has he exploited the presidency for unseemly financial gain? Does the Clintons’ private foundation reflect a worthy model of charitable giving – or the federal fisc’s subsidization of Senator Clinton’s presidential candidacy? Was Mr. Clinton financial relationship with Yucaipa appropriate for a former president – or for the spouse of a prospective president?
The Clintons’ tax returns raise one further issue which also requires public discussion: The federal subsidy the Clintons have received over the last seven years while earning in excess of $100 million. Mr. Clinton’s aggressive pursuit of post-presidential income is incompatible with the extensive public support he has received from federal taxpayers since leaving office. That public support was designed to preclude the nation’s chief executives from facing financial hardship after their terms of office. It was not intended to subsidize the aggressive pursuit of a post-presidential fortune.
The federal taxpayer’s subsidy of Mr. Clinton has several components. First, as a former president, Mr. Clinton is entitled to receive, for the remainder of his life, the salary of a cabinet secretary. That salary is today $191,000 per annum. In addition, as a former president, Mr. Clinton also receives, at taxpayer expense, “suitable office space appropriately furnished and equipped.” Mr. Clinton’s office in New York City costs federal taxpayers over $700,000 per year to lease and operate. Federal taxpayers also defray the salary and benefits for office staff and some of Mr. Clinton’s travel outlays. The General Services Administration currently budgets for all of these costs a yearly total of $1,162,000 for Mr. Clinton. The equivalent annual figures for former President Bush and former President Carter are $786,000 and $518,000 respectively.
In addition, Mr. Clinton is also entitled, at taxpayer expense, to Secret Service protection for the remainder of his lifetime – even though, as president, Mr. Clinton signed legislation limiting Secret Service protection for his successors to the first ten years after they leave office.
For most Americans, Mr. Clinton’s package would constitute a heady lifestyle. For President and Senator Clinton, however, this post-presidential package merely provided a tax-financed base for the aggressive pursuit of unprecedented financial gain for a former chief executive.
Mr. Clinton has apparently treated as tax-free much of the federal largesse he has received. While the Clintons’ federal tax returns report as taxable income his cabinet-level salary payments, he has apparently elected to exclude from his taxable income the other benefits he receives, namely, his federally-financed office, staff, travel costs and protection.
If the Clintons had treated these items as taxable, they most likely would have been reported on their Forms 1040 on line 21 for “other income”. On the Clintons’ 1040 for 2006, line 21 is blank, suggesting that they did not include in income the office, staff, travel costs or protection provided to them by federal taxpayers.
The tax-free treatment of this federal subsidy of Mr. Clinton makes it particularly valuable for him.
This post-presidential package and the federal subsidy it represents were not intended as a conventional deferred compensation arrangement. They instead reflect the judgment that former presidents should not be required to hustle in the marketplace after they leave office.
The story of an impoverished Ulysses Grant, financially-impelled to write his memoirs as he was dying of cancer, is an iconic image of American history. From this tragedy, the world received one of the great military autobiographies of all time. However, most Americans would prefer that the nation’s former leaders not confront the kind penury which plagued Grant at the end of his life.
The immediate stimulus for the modern post-presidential compensation package was the report that former president Truman lacked the resources to return his mail from the American public.
This post-presidential package was designed to preclude Grant’s and Truman’s successors from experiencing the financial problems they confronted. It was not intended to serve as a federal subsidy for the aggressive pursuit of a post-presidential fortune.
President Clinton is not required to accept all or any of the proffered subsidy from the federal Treasury. He can also make a payment to the federal fisc reimbursing it, in whole or in part, for the costs of this subsidy. Such reimbursement could, for example, be geared to the taxes Mr. Clinton would pay if his post-presidential benefits were treated as taxable income.
The federal taxpayers provide post-presidential benefits so that former chief executives will not replicate the unfortunate financial history of Grant or even the more moderate financial discomfort in which President Truman found himself. We do not subsidize former presidents so that they may pursue lucrative private sector careers. As a federal taxpayer subsidizing Mr. Clinton’s lifestyle, I hope he feels my pain.
“We are pleased to release the first annual Illustrator Income Survey; this 88-page book details the incomes of 616 illustrators from all over the world. Easy-to-read charts and graphs detail income information by country, age and gender.”
3x3, THE MAGAZINE OF CONTEMPORARY ILLUSTRATION: Illustrator Income Book Now Available ($30 for a hard copy at Blurb, or $5 for a downloadable PDF)
You may be interested in knowing that one illustrator somewhere in the US banked $980,000 last year.
Y’all should head over to Leif Peng’s “Today’s Illustration” blog for some great stories and discussions about how much illustrators in the 1950s used to earn. The three most recent posts cover a lot of this. Pop ‘em into your Instapaper for some bedtime reading.
Can you please tell me if a publisher takes care of income tax in royalty payments? Or is paying tax the job of the author or agent?
As an author you are not an employee of the publisher, you are an independent contractor. Therefore you are responsible for filing your own taxes and paying them (quarterly). Typically, all payments are sent through your agent and issued from your agent, less her commission. Therefore, at tax time you should receive a 1099 from your agent that shows your actual earnings. And don't forget to save those receipts for things like your computer, Internet access, printer ink, or the ereader you use. All of those would be considered business expenses.
**Quick disclaimer. I'm not even close to a tax attorney so before filing make sure you check with your accountant on what you really can write-off and what you can't.
One of the great things about my colleagues at ALA is that they tend to have very interesting backgrounds. Some of them do improv comedy, some are artists, one has a radio show, and one is an honest-to-god-real-live documentary filmmaker. Last month I had the pleasure of seeing the Chicago premiere of Dan Kraus’ second film, Musician, at the Gene Siskel Film Center. I enjoyed it very much, and I’m looking forward to watching Sheriff on DVD and seeing future entries in the Work series.
You may already be enjoying some of Dan’s work, as he’s been creating and editing videos on AL Focus, the online video arm of American Libraries. Inspired by what he has learned about our profession through his work as an AL editor, he is hoping to focus his next entry in the Work series on a librarian. If you meet the following description, or if you know someone who does, please email Dan.
“The first movie was called SHERIFF. The second was MUSICIAN. The fourth will be PROFESSOR, the fifth will be PREACHER, and the sixth should be SOCIAL WORKER.
What’s missing there is the third movie, which I’ve been having trouble with. Because of the demographic spread of the other movies already shot or in-progress, I would really like to profile a Latina/Hispanic woman. And I was thinking (duh), what about LIBRARIAN?
Although I am open to any and all suggestions, I think it would be fascinating to profile someone dealing with multiple cultures, languages, and economic levels. I also think it could be good to find someone who works at a very small library with limited resources, a place where the librarian is forced to be everything at once: Librarian, Teacher, Career Counselor, Babysitter, IT Specialist, Sage, Freedom Fighter, Fundraiser, and so on. For these reasons, I think finding a librarian in a small town, possibly one with a heavy immigrant population, could be quite dramatic.
Also (although this is not a hard-and-fast rule) I’d prefer to avoid the following states that I’m already shooting movies in: North Carolina, Illinois, Iowa, Virginia, and Florida.”